Unequal societies in a more equal world

‘The richest 85 people on the globe – who between them control as much wealth as the poorest half of the global population put together – could squeeze on to a single double-decker.’ theguardian.com, January 20

A single double-decker bus? Is that different from a double single-decker?

Oh, don’t be unkind. This snippet comes from The Guardian, which credits global development charity Oxfam, which in turn cites a report from the bank Credit Suisse – and I should probably make clear that neither Oxfam nor Credit Suisse have anything to say about buses. I think that’s what we in the trade call a “scoop of interpretation”.

A striking image, though.

Yes, but a distorted one. In the same vein, here’s a surreal image of my own: my toddler controls more wealth than the poorest one and a half billion people on the planet.
Does he have a rich uncle?

No, but he has no debts. That puts his wealth at zero. The poorest people have more debts than assets; their wealth is less than zero. It’s difficult to know exactly how many people are in that boat – understandably, the data are patchy. Still, James Davies, Anthony Shorrocks and Rodrigo Lluberas, academics who worked on the Credit Suisse report, have suggested elsewhere that the poorest 10 per cent have significant net debt.

This sounds like your usual sophistry.

The sophistry isn’t mine. Oxfam and The Guardian are clearly very keen to draw attention to how rich the very rich are. But something has gone awry when the same reasoning leads you to conclude that my son is richer than the poorest 1.5bn put together. On this measure, he’s also richer than an indebted graduate of Harvard Business School. As Credit Suisse points out, “human capital” or earning power isn’t included in the analysis.

OK, so the single double-decker story is daft. But it points to an important truth: economic inequality is growing sharply.

That’s where Oxfam’s interest in all this is curious. The thrust of Oxfam’s argument is that in a lot of countries, the gap between the incomes of the rich and poor is widening, which is true. They say this is both caused by and causes rent-seeking behaviour – elites shaping the rules to suit themselves. This is very plausible. If you want to make a lot of money in the world, it helps to have a friendly government give you a monopoly.

So Oxfam is right!

Except it’s not clear this is a pressing global development issue. Looking at the world as a whole, income inequality does not seem to be rising and is perhaps even falling a little. Exact details depend on how you measure things but the basic story is that some middle-income or poor countries with large populations – Brazil, India and China, but also the likes of Turkey, Indonesia and Nigeria – have been growing faster than rich countries. This offsets the effect of increasing inequality within countries.

So it’s possible for inequality to be increasing in every country in the world and yet global inequality to be falling.

Not only is it possible, it’s actually not far from the truth. Which is why it’s so baffling that Oxfam has jumped in here feet-first. There are two big trends. One is that there’s a lot of good news in the world of economic development. Poverty rates have fallen and indicators such as infant mortality have been moving in the right direction. The other trend is this sharp rise in the income share of the rich, particularly in the US, the UK and other anglophone countries. It’s misleading to present this as evidence that the plight of the world’s poorest is getting worse.

So what should be done?

Oxfam thinks the answer is for the super-rich to promise to be good: no tax havens, no lobbying, support universal healthcare, support progressive taxation.

What about philanthropy?

Not mentioned.

Strange.

That puzzled me, too.

And what would you do about rising inequality in rich countries?

I think something needs to change but I am at a loss as to what. Universal high-quality education seems to have played an important role in limiting inequality in Scandinavia. But that pushes the problem down the line: how do we get universal high-quality education?

So increasing inequality is real and you don’t know what do to about it.

Quite so; sorry. Maybe Oxfam’s suggestion of asking the plutocrats to play nicely isn’t such a bad idea.

9 Comments

Interesting, but the following passage feels like an appeal to Simpson’s Paradox to me. Just because you can aggregate data in such a way that the trend is eliminated in aggregate, it doesn’t mean that the trend isn’t a real effect in the subgroup measured.

Exact details depend on how you measure things but the basic story is that some middle-income or poor countries with large populations – Brazil, India and China, but also the likes of Turkey, Indonesia and Nigeria – have been growing faster than rich countries. This offsets the effect of increasing inequality within countries.

I love your work, particularly this series. What would make it even better is if there were a few references to the source of key statements. Simply for further reading.

In this piece (which as noted above, is excellent), I’m intrigued as to the source of the statement that “Universal high-quality education seems to have played an important role in limiting inequality in Scandinavia.”

Could you comment on the relationship between income share and wealth share?
My understanding is that while income distribution has changed in the last 30-40 years, especially in the US, the wealth distribution has not changed so much and is not so different across countries (US, Sweden, Denmark, Germany, UK, Switzerland, etc). Why?

You mention progressive taxation as a mitigation for rising inequality (I’m not sure if that’s income or wealth). Are those inequalities problematic and why?
How are demographic effects accounted for in those measures (the young and the old usually have lower incomes, while the mid-aged and old have greater wealth, going through life stages).
How do you explain that the US has one of the most progressive taxation, yet one of least equal income curves.

The Gates just said in their annual letter (of Gates Foundation) that the world has been developing and now everything is better than ever, poverty will probably disappear in 30 years. Do you think there is a contradiction between this and the widening gap between the rich and the poor?

… and middle income countries. Just look at the rise of the Russian oligarchs, whose fortunes were acquired in the selling off of state monopolies, while the median income lingers below $500/month. (The mean income is over $900)

This massive inequality in Russian wealth has knock-on effects on wealth distribution elsewhere – consider the house prices in London, where wealthy owners are made still wealthier by the effect of money effectively plundered from the Russian people.